New record in the value of Varma’s investments, 1.7% return in H1

New record in the value of Varma’s investments, 1.7% return in H1

Varma’s return on investments recovered, achieving positive figures in the second quarter. The market value of investments is the highest in the company’s history and solvency remained strong.

“Varma’s investments recovered from the market turmoil in the early part of the year and trade policy tensions failed to significantly weaken the return. Thanks to the effective diversification of the portfolio, return on investments rose to 1.7% (4.7%),” says Varma’s President & CEO Risto Murto.

The value of investments was EUR 46.4 (45.0) billion at the end of June and solvency was strong at EUR 11.3 (11.5 on 1 Jan) billion.

Fixed income investments aside, other asset classes yielded steady returns in the first half of the year. Private equity investments were the best performers at 7.8% (3.6%). The return on hedge funds, 3.4% (3.6%) significantly improved the total return on investments. Real estate investments also yielded steady returns, 2.7% (2.5%). The return on equity investments was 3.3% (7.0%). Varma’s interest income was negative at -1.5% (2.9%).

“After the early-year turmoil, the equity market recovered and US equities in particular yielded good returns. Interest income was depressed especially by emerging market fixed income investments, which suffered due to the appreciation of the US dollar and increase in political uncertainty,” says Varma’s Chief Investment Officer, Reima Rytsölä.

The share of listed equity investments in the portfolio was reduced slightly in H1 due to tensions in trade policy.

Lack of options for investors

Global economic growth continues to be relatively strong although Europe has slowed down slightly. This has supported the development of asset values, although there is also some uncertainty on the markets.

“The day-to-day business of euro investors is still defined by a lack of options in the world of low-interest-rate and relatively expensive equities,” says Reima Rytsölä.

“The greatest threat is the simmering trade war, while the gradual movement of the central banks towards a tighter trade policy does not seem to have upset the market,” says Reima Rytsölä.

Popularity of partial old-age pension levelled out

By the end of June, 20% fewer new pension decisions were made at Varma than in the corresponding period last year. The popularity of the partial old-age pension has levelled out since last year’s peak and the pension was granted to 1,024 (1,632 corresponding period last year) people in January–June.

At the end of June, Varma provided insurance for 550,000 (537,000 at the start of the year) employees and self-employed persons and for 340,000 (342,000 on 1 Jan) pension recipients.

In the first half of the year, EUR 20 million in premiums written were transferred to Varma from other earnings-related pension companies. The core of customer work is workability management, for which Varma is constantly developing tools; the latest ones being the new questionnaire tools for the early identification of workability risks.

EcoVadis, an international corporate social responsibility assessment specialist, has awarded Varma the CSR Rating Gold recognition. In its independent assessment carried out in the summer, Varma was among the top 5% of the 45,000 companies analysed.

Risks to Finnish economy from abroad

The Finnish economy has recovered from its long economic slump and the global economy’s pull has helped Finland forward. However, it is important for Finland to prepare for a gradual slowing down of the strong growth in the global economy.

“The greatest short-term risks impacting Finland are currently related to the global economy. All barriers to free trade are especially harmful to Finland which is dependent on exports,” says Risto Murto.

Varma Mutual Pension Insurance Company is a responsible and solvent investor. The company is responsible for the statutory earnings-related pension cover of some 890,000 people in the private sector. Premiums written totalled EUR 4.9 billion in 2017 and pension payments stood at EUR 5.5 billion. Varma’s investment portfolio amounted to EUR 46.4 billion at the end of June 2018.